Exploring and keeping readers up to date with the growing economic and political ties between China and South America. Including all the good stuff: Commodities, Energy, International Finance, South-South Cooperation, Microfinance and more

Saturday, May 2, 2009

India, Indonesia and South Korea reported significant year-on-year declines in exports on Friday.

However, a growing gap in trade performance was underlined by India’s latest figures, with exports tumbling 33 per cent in March to $11.5bn (€8.7bn, £7.7bn) from a year earlier – the biggest drop on record.

India’s exports to the US have fallen more sharply than those of China, South Korea and Brazil, according to a study by the Federation of Indian Chambers of Commerce and Industry (FICCI).

Gems, pharmaceuticals, textiles, vehicles and auto parts were all hit in an overall 12 per cent drop in US exports between October and February.

“The sharp decline in our exports to the US, which accounts for 13 per cent of our global exports, is a matter of deep concern,” said Harsh Pati Singhania, the president of FICCI.Click here to access this FT Asia article

Personal Analysis... no comment... Perhaps some other time. For now let me be clear the opinions expressed in this specific entry are those of the Financial Times and their journalists.

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China raised the spectre of renewed international trade friction over market access for foreign financial information providers as the government said such businesses must not engage in news gathering in China.

The surprise ban on this business area is seen by industry executives as backtracking on an agreement China reached with the US, the EU and Canada in November last year on allowing companies like Bloomberg, Dow Jones and Thomson Reuters to distribute information to financial and corporate clients.

...

“Thomson Reuters has developed an excellent relationship with SCIO over many years and looks forward to working with them on the successful implementation of the new measures to ensure that financial markets in China are as well informed as their counterparts outside China,” said Henry Manisty, global head of government and regulatory affairs at Thomson Reuters.

Dow Jones and Bloomberg were not immediately available for comment.

China has required foreign news agencies to distribute to media clients only through Xinhua for more than 50 years. This will not change, and the foreign players do not challenge this arrangement for their news agency business which helps the Chinese government ensure news does not reach the public uncensored.Click here to access this FT Asia article

The Bank of Japan expects growth to contract by a significantly greater margin than it forecast just two months ago as the world’s second largest economy continues to suffer from a collapse in demand.“Economic conditions in Japan have deteriorated significantly,” the BoJ said in a statement on Thursday as it lowered its forecast for the economy to a 3.1 per cent contraction in the year to next March, rather than a previously expected 2 per cent decline in growth.

Friday, May 1, 2009

Back in May 2008, soon after I made my decision to participate the world of internet blogging, social networking, independent analysis/journalism and information exchange I stumbled upon a incredible site by the name of IncaKolaNews. It is run by a humble, well informed, intelligent guy who goes by the name of Otto.

He's down on the ground in Peru, and by "down on the ground" I don't mean living in a nice Miraflores apartment facing the Pacific Ocean in the capital Lima.

Otto is the real deal and offers a very insightful view into the real world of South American politics, mining and finance.

Here are some highlights as to what the INK Weekly will offer subscribers. I have copy and pasted this information from this page where you can click to read a more in depth summary.

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* Fundamental analysis of mining stocks. The weekly will include at least two NOBS reports per month (perhaps more), a format that has proved very popular with site regulars. These reports are likely to cover mostly junior miners but may include other regions than LatAm or different industrial sectors if good opportunity arises. The NOBS reports will likely aim at highlighting buying opportunities, but may also cover updates or even hold/sell calls if a company catches my eye. The reports will also eventually cover the 'Stocks to Follow' portfolio.

* Stocks to follow. I plan on developing a short list (likely not more than ten stocks at any given moment) of companies that I believe will offer strong profit-making opportunities. Once again, Latin American exposed stocks will be favoured but other regions will not be excluded for simple geographical reasons. The performance will be tracked using a model portfolio. Additionally, as 'selling well' is equally as important as a successful buy call, the IKN Weekly will not hesitate in giving 'take profit' or 'stop loss' signals. Regular readers of the blog will know how I normally call my trades on site and the principle will be the same.

* Regional Politics, but not any old gossip. Regional political or economic developments that offer the investor a potentially profitable knowledge advantage are the matters that will interest us in The IKN Weekly. What Hugo said to Evo about Barack will not interest us. The type of political development in Ecuador that allowed this blog to call Dynasty (DMM.to) a buy just days before the beginning of its 300% upmove in December will most definitely interest The IKN Weekly.

* Market Watching, providing impressions, thoughts, opinions on whatever happens in the sector during the week and how you as an investor might benefit going forward. This would really be a catch-all category covering many aspects of the junior mining investment world, but a topical example would be as in yesterday morning's blog content mentioning International Royalty Corp. (IRC.to) (ROY). I wrote that IRC.to would be a good way to play the positive news from Barrick about Pascua Lama. It subsequently rose 13% from C$2.63 to C$2.97, with the final push made when IRC.to published its news release promoting the Pascua Lama link late Thursday.

Thursday, April 30, 2009

Taiwan’s closer ties with China may help its economy recover more quickly from a record slump, boosting confidence, investment and its ability to benefit from growth in the mainland...

“Taiwan is well-positioned to benefit from the improving cross-strait ties, especially with China expected to come back robustly from this economic crisis,” said Prakash Sakpal, an economist at ING Bank NV in Singapore. “Demand from China will be a good buffer.”

Just when the world is beginning to appreciate China’s biggest banks, unencumbered by Wall Street assets of no discernible value and fortified by record first- quarter lending, some analysts say it’s too good to be true.

While Industrial & Commercial Bank of China Ltd., China Construction Bank Corp. and Bank of China Ltd., three of the world’s four largest banks by market value, led an increase in lending focused on investments in railways, roads and ports, similar state-directed loans caused bad debts to snowball in the 1990s. The resulting rescue cost $650 billion and took 10 years.

“We suspect some of the banks may have compromised their risk-management and risk-aversion attitude to meet targets and government expectations,” said Wen Chunling, a Beijing-based analyst at Fitch Ratings. “That will lead to a rebound in non- performing loans in the next few years.”

Southeast Asian finance ministers and their counterparts from Japan, China and South Korea may complete discussions on a currency pool agreement this weekend amid signs the worst of the region’s economic crisis may be over.

Officials from 13 countries are gathering in Bali on May 3 to finalize each nation’s contribution to the $120 billion pool of foreign-exchange reserves that can be used to defend their currencies in times of financial turmoil. They will meet at the sidelines of the Asian Development Bank’s annual meeting on the Indonesian resort island.

“As recent as a few months ago, there were expectations that at least one country will need to tap the reserve pool for funds before this crisis is over,” said Vishnu Varathan, a regional economist at Forecast Singapore Pte. “With signs that the slowdown is easing and of stability in the financial arena, that seems unlikely now.”

The financial crisis has hit Singapore hard. The city-state after all is home to the largest container shipping hub in the world. When global trade slumped, inevitably so would the Singaporean economy.

The Financial Times in this article seems to agree with a observation I have made on my business trips to the city. The average Singaporean works very hard, earns a decent yet not absurdly salary, receives subsidized housing and generally speaking... LIVES WITHIN THEIR MEANS

Much like the average citizen, The city-state has also lived within its means. The Singapore Sovereign Wealth Fund is worth around $100 billion, which Singapore saved up during the good years.

This has transpired in the form of confidence, at least for Singaporeans that is. Foreign expats have ironically been the hardest hit by the crisis, suffering a major exodus after the fall of Lehman Brothers last year. Singaporeans on the other hand are holding up quite well, continuing to spend while waiting for a recovery.

“We suffered a fall in business, particularly among expats, after the collapse of Lehman Brothers in September. But the slack has since been taken up by locals who still have money to spend,” said Chris Churcher, the owner of the Red Sea art gallery.

Cem Karacadag, an economist at Credit Suisse in Singapore, said that Singaporeans are used to living within their means since he estimates half of the working population makes S$2000 ($1,354, €1,022, £914) or less a month in one of Asia’s most expensive cities. About 85 per cent of the population lives in publicly subsidised housing, leaving little risk of foreclosures.

“We are a resourceful people,” said Jeffrey Tan, who owns a small printing company. When business orders started drying up, he decided to take a part-time job as a taxi driver. “It is a flexible job so I have time to devote attention to my business when I need to. The only problem is that fewer people are taking taxis.” Mass transit use has risen as people try to cut costs on incidental expenses.

Click here to access the FT article which was used in writing this post.

Wednesday, April 29, 2009

India's Microfinance sector is doing well, so well that the leading private and foreign banks in the country are planning to increase their MFI operations.

This article from the Hindu, MFI institutions are usually "fund-starved" in even the best of times due to the incredible demand that is unleashed as soon micro-credit becomes available to dis-enfranchised poor working within the context of a extra-legal economy.

"Despite the financial crisis, MFIs have been the least affected as they have managed to maintain the quality of the business. RBS will continue to expand its MFI portfolio and expects to grow the size to Rs 450 crore by the fiscal-end," RBS Vice-President Moumita Sen Sarma said.

Additionally the lender does not expect any deterioration in the asset quality of MFI units in 2009-10.

The question I ask to those interested in starting a discussion is how long can the Microfinance sectors in developing nations go unaffected by the greater global recession and continue to grow?

Microfinance generally targets the poor people in countries where poor do not have access to modern financial instruments like loans, savings accounts. Many times they lack access to even the most simple of modern technologies, like a cell phone.

Is it possible for Microfinance to "feed itself?"

Consider this cycle. A poor migrant has just emigrated from the Andes mountains to Lima, Peru. After years of struggling to make ends meet, living in a hut constructed out of garbage on a sand dune in the Atacama desert, this woman secures a loan to buy a blender. She can now make tasty juices from all of Peru's delicious fruits that she can sell to people waiting for the bus in her shanty town (Pueblo Jovenes as they are called in Lima).

Technically speaking wealth and economic activity have been produced in this corner of Peru's extralegal sector. This woman is able to pay back her loan with interest so that the lender makes money, she is able to earn a new stream of revenue which she can then spend in the greater economy on goods and services and maybe, just maybe she will eventually be able to afford something like schooling for her children.

How long can this last? Even if money is made available for Microfinance, how long will those workers waiting for the bus in the Shantytown remain employed? If they do lose their jobs does this mean the demand for juice will disapear? Or is there such a high demand for simple services like cold juice in the extra-legal economy that this woman who took out a micro-loan will continue to be able to do business?

Is demand from the underbelly of the world's developing nations so great that it can support itself and continue to grow even in the face of declining growth in the official economy in these countries (ie: the export, financial and real estate sectors)?

In the article from the Hindu it seems Indian banks remain confident growth in the microfinance sector will remain robust.

"We could nearly double our MFI portfolio over the last year. We have been working closely with 30 top MFIs to finance their projects and look forward for more such tie-ups in the future," ICICI Bank General Manager (Agri, Rural and Micro Banking) Kumar Ashish said.

Foreign banks too...

"We are shortly launching a project in rural Maharashtra with a leading MFI... HSBC assists the MFIs to build up a strong business model in a number ways," HSBC Group General Manager and CEO Naina Lal Kidwai said.

The Hindu, started in 1878 as a weekly, became a daily in 1889 and from then on has been steadily growing to the current circulation of around 11,80,000 copies and a readership of about 4.05 million.

The Hindu's independent editorial stand and its reliable and balanced presentation of the news have over the years, won for it the serious attention and regard of the people who matter in India and abroad.

The Hindu uses modern facilities for news gathering, page composition and printing. It is printed in twelve centres including the Main Edition at Chennai (Madras) where the Corporate Office is based. The printing centres at Coimbatore, Bangalore, Madurai, Hyderabad, New Delhi, Vizag, Thiruvanathapuram, Kochi, Vijayawada, Mangalore and Tiruchirapalli are connected with high speed data lines for news transmission across the country.

Tuesday, April 28, 2009

"If it hits the global economy like it did Asia 5-6 years ago it's going to be a disaster. As you remember, I think you were Asia closed down for about 6 months. People didn't goto school, they didn't go to work, they didn't ride the bus, they didn't get on airplanes. This could be a real disaster at a time when the world economy is already weakened."

and

"I hardly consider this an emerging markets problem, if you remember 5-6 years ago Singapore and Hong Kong which are hardly emerging markets were devastated by what happened. I mean in the US, so far apparently its hitting the US too, its certainly not hitting other markets, its hitting the big countries so far."

and...

"Betty can you imagine what Karl Marx must be thinking right now! That poor guy somewhere is saying America is finally succumbing. The Automobile industry is owned by the government and by the labor unions. The banks, the financial institutions are owned by the government. What more could he want? When you look at America in 10 years what are you going to look back on?"

and one more...

"So i'm sitting here with some money, looking for things to invest in. The only things I can find where the fundamentals continue to improve are commodities, which we have discussed before on this show. The commodity fundamentals are getting better no matter what happens to the rest of the world. The fundamentals of General Motors are not getting better. The fundamentals of Citibank are not getting better."

He’s the swashbuckling world traveler and legendary investor who made his fortune before he was forty. Now the bestselling author of A Bull in China, Hot Commodities, and Adventure Capitalist shares a heartfelt, indispensable guide for his daughters (and all young investors) to find success and happiness. In A Gift to My Children, Jim Rogers offers advice with his trademark candor and confidence, but this time he adds paternal compassion, protectiveness, and love. Rogers reveals how to learn from his triumphs and mistakes in order to achieve a prosperous, well-lived life. For example:

• Trust your own judgment: Rogers sensed China’s true potential way back in the 1980s, at a time when most analysts were highly skeptical of its prospects for growth.

• Focus on what you like: Rogers was five when he started collecting empty bottles at baseball games instead of playing.

• Be persistent: Coming to Yale from rural Alabama, and in over his head, Rogers never stopped studying and wound up with a scholarship to Oxford.

• See the world: In 1990, Rogers traveled through six continents by motorcycle, gaining a global perspective and learning how to evaluate prospects in rapidly developing countries such as Brazil, Russia, India, and China.

• Nothing is really new: anything deemed “innovative” or “unprecedented” is usually just overhyped, as in the case of the Internet or TV, airplanes, and railroads before it

• And not a bit off the subject, and very important: Boys will need you more than you’ll need them!

Wise and warm, accessible and inspiring, A Gift to My Children is a great gift for all those just starting to invest in their futures.

About the AuthorJim Rogers co-founded the Quantum Fund before he turned 30 and retired at age thirty-seven. Since then, he has served as a sometime professor of finance at Columbia University’s business school, and as a media commentator worldwide. He is the author of A Bull in China, Hot Commodities, Adventure Capitalist, and Investment Biker. He recently moved to Asia with his wife and daughters.

“There is a risk that the flu scare will hit international aviation travel, which would have a negative impact on demand for jet fuel,” said Eugen Weinberg at Commerzbank.

He added: “Current low oil prices will cause Opec to maintain current production constraints or take steps to cut back output even further, which supports our view that crude oil will trade at US$70 a barrel by the end of the year."

Completing over a year of negotiations, Peru and China signed their free trade agreement into life during middle of the night while most of the Western world slept soundly.

Chinese Vice President Xi Jinping (R) meets with Peruvian First Vice PresidentLuis Giampietri Rojas at the Great Hall of the People in Beijing, capital of China,April 28, 2009. (Xinhua/Fan Rujun)

This makes Peru the second country in Latin America to sign such a deal with China after Chile which signed a agreement with Beijing in 2005.

According to Zhu Hong, deputy general director of the International Department of the Chinese Commerce Ministry, the FTA would come into full affect in 2010.

"The China-Peru FTA is a comprehensive deal, covering goods, service, investment and other fields while the accord with Chile deals with goods only," Zhu said. A complementary deal on service trade was signed with Chile in 2008.

"The pact features a high degree of openness," Zhu said, citing phased, free tariffs on more than 90 percent of goods ranging from China's electronic products and machinery to Peru's fish powder and minerals.

Under the deal, both pledged to further open their service sectors and offer national treatment to investors from the other country.

Trade between Peru and China reached $7.5 billion in 2008.

China is also in Free Trade talks with Australia, the Gulf Cooperation Council, Iceland, Norway and Costa Rica.

One thing is certain, the US is not the only one who can sign Free Trade Agreements, China has in all actuality has been far more successful in recent years (thanks in large to political squabbling in the US) at signing trade agreements with strategic partners around the world than the US has.

Monday, April 27, 2009

Last week the Internet was a buzz with news that China officially announced that it would increase its gold reserves.

Newsworthy yes, but as Otto over at IncaKolaNews in this article magnificently articulates... major news reports and analysis seemed to miss the bigger picture.

I myself posted a small analysis on this topic last Friday, April 24, 2009.

I may have mislead readers slightly with the gold chart I included. I was not suggesting gold is a good investment at the moment. I am no gold expert, and I definitely am not in any position to say whether China's move to buy more gold will affect the global price of gold.

However, I have read a good deal about gold in history text books and in the news in recent months with the global slowdown. It is clear gold remains as it has throughout history, a store of value.

My analysis simply to articulate the following:

China is concerned about the possibility of inflation eroding the value of the money countries like the United States will eventually have to pay back. As developed economies lower interest rates and print money to spur growth their currencies will eventually weaken as money floods the global economy. Likewise, the RMB (Yuan) will likely continue appreciating as China's economy continues to develop. and modernize. All this is not good news for the money China has stashed away in its rainy day fund.